America's Bank: The Epic Struggle to Create the Federal Reserve (16 page)

Aldrich confessed to Taft
that he would gladly retire from public life once his plan was enacted. But although the President was his ally, his chances of being reelected—and actually helping Aldrich—seemed ever more slim. The backers of the Aldrich Plan might well have to cultivate some other patron in the White House. Roosevelt, perhaps?
Andrew sent the former president
a complete set of the Monetary Commission publications, some thirty-five volumes. Roosevelt graciously accepted them, but it is unlikely that he gave them any thought; political economy was never his cup of tea.

The other possibility was Woodrow Wilson. By late 1911
the governor was a leading candidate
among several contenders for the Democratic nomination and perhaps for the White House. Vanderlip reported that the “
current is drifting very strongly
toward Woodrow Wilson.” Whether Wilson would be open to the Aldrich Plan was a matter of intense speculation.

Although Wilson was not a financial expert, he was well versed in the Founding Fathers’ early conflicts over central banking. Wilson’s upbringing favored laissez-faire, but his professional training had steered him in the direction of centralism. The son of a Presbyterian
minister, born in Virginia and raised in various communities in the South, Wilson attended Princeton, where he gobbled up the study of American government. After dabbling at law, he opted for a career in academia and wrote a widely praised doctoral dissertation in which he strongly criticized congressional domination of the executive branch.
*
By then, Wilson was convinced of the virtue of a strong central government; indeed, he was to say of his life after Princeton, “
Ever since I have had
independent judgments of my own I have been a Federalist.”
As a mature political scientist
, he heaped praise on Hamilton, the father of the first Bank of the United States, labeling him “one of the greatest figures in our history.” He was distinctly cooler to Jefferson, that hater of banks, whom he dubbed “a great man, not a great American.” In 1902, the same year Wilson was named president of Princeton, he published his massive
A History of the American People,
which included the distinctly anti-Jacksonian passage: “
The supporters of the second bank
were in a measure justified in claiming that for such a purpose the very government itself had been set up.” And not only had the Second Bank shown potential, according to Wilson; it had “
proved itself
” to be “a great commanding bank.” For a student of American government, these were strong words. It is worth noting that even then—some eight years before Wilson ran for elective office—he confided to the historian Frederick Jackson Turner, “
I was born a politician
and must be at the task for which by means of my historical writing, I have all these years been in training.”

Most bankers had not read Wilson’s scholarly writings, but they were aware of his reputation for thoughtfulness. It was known that he had declined to support
the silver campaign of Bryan in 1896
. Indeed, it had been a conservative magazine editor,
George Harvey
of
Harper’s Weekly,
who had nurtured Wilson’s entrée into politics, for the
very purpose of establishing a potential Democratic leader who was not a populist like Bryan. Voted by students the most popular professor at Princeton six years in a row, Wilson was an inspiring figure. And from the moment he entered politics, his first serious biographer noted, Wilson had
his eye on the White House
. His rise was exceptionally rapid.

Bankers were also aware, however, that in the year since Wilson’s election as governor, his positions had moved left and his rhetoric had turned against Wall Street. In the statehouse he was solidly progressive, extending the reach of the public utility commission to give it power over utility rates, establishing a liberal workmen’s compensation program, and successfully pushing for primary elections. Significantly, he fought to break the power of political bosses (including the one who had spearheaded his nomination). And as Aldrich sought to popularize his plan, Wilson made increasingly caustic comments about bankers. In June 1911, in Harrisburg, Pennsylvania, he told a cheering throng that “
the greatest monopoly in this country
is the money monopoly,” adding that “all of our [financial] activities are in the hands of a few men.” Later that summer, he told an interviewer that a banking measure bearing Aldrich’s name “must have been drawn in the offices of the few men who, in the present system of concentrated capital, control the banking and industrial activities of the country.”

Wall Street was naturally stung by such comments. It was said with some exaggeration that “
everyone south of Canal Street
was in a frenzy against Wilson.” For sure, J. P. Morgan despised him. New Yorkers felt a hint of betrayal, for Wilson had distanced himself from Harvey, the editor who had been his champion—and whose support he now considered an embarrassment. The
Times
was moved to editorialize, “We deeply regret that Gov. Woodrow Wilson should permit himself to talk, for publication . . . in a manner ill-befitting his character, standing and aspirations.”

Sensing his potential, conservatives wanted to believe that Wilson had not truly forsaken them. And Wilson, at least, acknowledged
that banking reform was a complicated subject. It was, he said in Harrisburg, “the greatest question before the country.” He added, “I have not given sufficient study to this question,” which was a way of avoiding a definitive position. Bankers still had hopes for Wilson, if for no other reason than that his intellectual capabilities were clearly of the first rank.

In the fall of 1911,
Andrew sent Wilson the Monetary Commission
volumes. Noting that he had studied economics under Wilson at Princeton, he entreated the governor to get in touch with him and lend his “great influence” on the determination of the fate of the Aldrich Plan. Wilson was cordial but no meeting occurred. A representative of the Citizens’ League also tried to get an endorsement; clearly, the group around the Aldrich Plan was envisioning Wilson as a presidential aspirant who might be open to reform.

The emissary who got furthest was
William Garrett Brown
, a contributor to
Harper’s
and a North Carolina Democrat who was committed to financial reform and, furthermore, felt that Wilson could do more than any other Democrat to help the cause. Brown was ailing and residing in a sanitarium but, with plenty of time for letter writing, he implored Wilson to study the Aldrich Plan and to refrain from criticizing it in the meantime. Wilson seems to have agreed.

However, at about the same time,
Wilson began to receive entreaties
from Edward M. House, a politically ambitious meddler with rodential features known by the honorific “Colonel” (although he was not one). Born in Houston in 1858, the son of a weathy cotton grower, House studied at schools in the East and returned home to manage the family business. He also wrote a utopian political novel and, more purposefully, became a Democratic political operative in Texas. He had since moved to New York, where he entertained national ambitions, and fixated on Wilson as a man to be president. Had House’s letters been any more cloying, Wilson might have been put off, but House struck just the right note of flattery and intimacy; it was as if they were co-conspirators and friends from his very first letter.

How Wilson must have brightened to receive House’s dispatch of November 18, 1911: “
I have been with Mr. Bryan
a good part of the morning and I am pleased to tell you that I think you will have his support.” Wilson knew he had no chance of securing the nomination without Bryan. But that had seemed a tall order. Wilson had made unflattering remarks about Bryan in the past, and of course had not voted for him in 1896 (although he had
in 1900 and 1908
). Since becoming governor, Wilson had sought to mend their relations. The previous spring, when Wilson’s wife, Ellen, learned that Bryan would be speaking in Princeton, she shrewdly telegraphed her husband, who was out of town, to hurry back.
Bryan came to dinner
and was a gracious guest; Wilson found him “captivating,” with greater “conviction” than he had anticipated. If that was the beginning of a thaw between the two, House’s letter proffered a full-scale detente. Wilson met with House for the first time several days later.

By December, House was coaching Wilson on how to deal with the Aldrich Plan. William Garrett Brown had been pressing Wilson to announce himself as either for the Plan or, at the least, favoring a nonpartisan consideration of it. House,
knowing how Bryan felt
about the Aldrich Plan, urged Wilson not to do this. He should simply say he would reveal his views at the “proper time.”

Wilson was deeply grateful for this advice. House’s friendship soon became a source of emotional as well as political support; Wilson began
addressing him as “My dear friend
.” Wilson did not make male friends easily (he did have a close woman friend), perhaps because he did not like challenges to his authority. There was no such possibility with the deferential House. Wilson was supposed to have said, “
He is like my second personality
.”

House pursued Bryan’s support
by sending him articles that testified to the enmity with which Wilson was regarded on Wall Street. The tactic succeeded in heightening Bryan’s interest, but he wanted harder evidence of Wilson’s conversion. On December 30, with the campaign season approaching, House conveyed to Wilson what was,
in effect, the bill for Bryan’s support. It came in the form of a letter from Bryan to House, with the relevant part quoted for Wilson’s benefit. “If he is nominated it must be by the Progressive Democrats and the more progressive he is the better,” Bryan declared. Warming to his role as a kingmaker, Bryan advised that Wilson declare himself at the party’s annual Jackson dinner on January 8, which “will give him a good chance to speak out against the trusts and the Aldrich Currency scheme.” There it was: Bryan’s price for supporting Wilson was nothing less than a full repudiation of the Aldrich Plan.

THE GREAT CAMPAIGN

The Democratic members
of the committee are absolutely unfit to ever produce anything.

—P
AUL
W
ARBURG

No one class can comprehend
the country; no one set of interests can safely be suffered to dominate it.

—W
OODROW
W
ILSON

A
S
THE
1912 presidential campaign unfurled, the candidates sought to curry favor with progressives, and progressives continued to regard banking reform with profound suspicion. Thrust onto the defensive, the reformers in the Aldrich gang would be forced to angle for position with whoever emerged as the winner. From a political standpoint, their timing could not have been worse.

During the first week of the new year, Professor Piatt Andrew and Senator Nelson Aldrich worked around the clock getting the
National Monetary Commission report (the Aldrich Plan) ready for submission to Congress, which had set a deadline of January 8. Since Congress was not in session, confusion arose over how the report should be “filed.” Hours before the deadline, Andrew drove signed copies to the residences of the vice president (representing the Senate) and the Speaker of the House. Brimming with pride, he wrote to his folks in Indiana, “
I got in the motor
and tore around Washington in a storm of sleet and rain.” Elated from finally finishing the long labor, the young professor hyperbolically described their report as “probably the most farreaching [
sic
] and most scientifically prepared legislative proposal upon any subject in the country’s history, at least since the early days.” With the report submitted, the Monetary Commission promptly went out of business.

Coincidentally, while Andrew was negotiating the wet streets of the capital, Woodrow Wilson was also in Washington, at the Jackson Day dinner, where he called for public oversight of banks. The governor, a careful politician, did everything to fulfill William Jennings Bryan’s request that he condemn the Aldrich Plan—except refer to it by name. “This country,” said Wilson, “will not brook any plan which concentrates control in the hands of the bankers. . . .
The bankers of the country
may have the highest and purest intentions, but no one class can comprehend the country; no one set of interests can safely be suffered to dominate it.”

In the presence of newspapermen, Bryan put an arm around Wilson, signaling that the governor had made important strides. However, Wilson
faced three rivals for the nomination
, the most formidable of whom was Champ Clark, the progressive-leaning Speaker of the House, who had the support of the Hearst newspaper chain and of many organization Democrats. Another contender, Oscar Underwood, the Alabama representative and House majority leader, drained support from Wilson’s natural base, the South. Wilson needed Bryan, who let it be known he would favor whichever of the
candidates was most opposed to “
predatory wealth
,” a phrase as charged then as a later day’s “the 1 percent.”

However, Wilson’s condemnation of the Aldrich Plan was less than absolute. He objected to banker control but, unlike Bryan, he said nothing about centralization, which was the core idea. In fact, back-channel sources suggested that Wilson—a lifelong student of the machinery of government—was intrigued by the prospect of a reforming institution. Soon after the Jackson dinner, Paul Warburg heard from a well-connected journalist:

In conversation with Mr. William
F. McCombs, 96 Broadway, who is Governor Wilson’s manager, told me this morning “not to be quoted” that the Governor was in sympathy with the Aldrich plan. The matter of control and the Board of Governors was the one question still undecided in his mind.

While Wilson’s position on banking remained something of a mystery, Warburg found an opportunity to lobby Theodore Roosevelt at the end of January.
He and Andrew were invited to a luncheon
hosted by the
Outlook
magazine, where Roosevelt was a contributing editor. The former president, who had yet to commit to a position on the Aldrich Plan, subjected Warburg to a battery of questions. Warburg’s replies were smoothly persuasive. Victor Morawetz, who advocated regional banks and was also present, protested it would be impossible in a country as expansive as the United States to manage a single central bank. Roosevelt burst out, “
Why not give Mr. Warburg
the job? He would be the financial boss, and I would be the political boss, and we could run the country together!” Although Roosevelt’s budding radicalism frightened bankers, Warburg concluded that the Rough Rider would at least be open to considering a central bank.

In February, Roosevelt formally declared
his candidacy for the White House. Even though the news was expected, Taft took it hard.
Years earlier, his wife, Nellie, had warned him not to count on Roosevelt’s loyalty. But she had suffered a devastating stroke, and the President no longer had the full support of his closest companion as he headed into a wrenchingly personal battle.

The challenge from Roosevelt effectively nullified Taft’s ability to advance legislation. Banking reform became a hostage to the campaign. Republicans were embarrassed by the Aldrich Plan and Democrats were beholden to oppose it. As a formality, the bill was introduced in the Senate, but no committee considered or discussed it. With the movement backed into a corner, Aldrich’s allies played for time. They concentrated on lobbying the parties to at least refrain from including
language in their platforms
that would preclude legislation later on.

Meanwhile, the country was gripped by an anti–Wall Street and anti-banking fever. In a new book aimed specifically at the Aldrich Plan,
U.S. Money vs. Corporation Currency,
Alfred Owen Crozier posited that control of the money system would be the political campaign’s “secret issue.” Crozier championed a signature belief of Bryan: that only government currency could be trusted, and that bank notes (the currency endorsed by Aldrich) were strictly a means of enriching bankers.

Reasonable arguments could be made for either private or government money, but Crozier, the son of an abolitionist preacher, did not make them. He was more interested in the supposed evils that lurked behind the Aldrich Plan, which was depicted in the book as a coiled cobra, ready to sink poisons into the bloodstream of the people. Crozier’s method was to assume a sinister motive and look for a guilty party. He blithely deduced that financiers had an interest in fomenting panics, and therefore must have concocted them. “
Why should not Wall Street
have panics once in a while?” Crozier rhetorically mused. “And if Providence won’t send a panic, why not make one, when it is so easy and will be so useful and profitable.” Crozier further averred that financiers had caused the Panic of 1907
in the full knowledge that it would bequeath the Aldrich Plan, which he termed “a huge private money trust to monopolize and forever control the entire public currency . . . of the United States.” It had all been planned—the Panic, the European expedition, Aldrich’s conversion—down to the last detail.

Crozier belonged to a long line of American conspiracists, arguably stretching from the witch-hunters in the Massachusetts Bay Colony to Oliver Stone. The shared link was that they saw in history’s unpredictable twists and turns a carefully plotted script. No misfortune could ever be random; every happenstance had to have a culprit. Such arguments had a powerful grip on the American heartland, further poisoning public sentiment against the Aldrich Plan.

Thoroughly tired of such controversy, Nelson Aldrich himself quietly withdrew.
He turned down all speaking invitations
, although he nourished the hope that Taft would be reelected along with a Republican Congress and that they would then pass his plan. Meanwhile, he tended to his stock portfolio and to his now finished mansion, whose centerpiece was a grand marble stairway in the entrance hall. The exterior, a rather “
grim granite and slate
,” his descendant was to write, seemed to have been designed to withstand a “siege.”

With public passions so inflamed against Wall Street, Representative Charles Lindbergh’s resolution for an inquest into the Money Trust obtained new urgency. Democrats in the House had opposed Lindbergh, on partisan grounds, but they needed some alternative to the Aldrich Plan—that is, they needed a banking program that was more than just oppositional. The Money Trust hearings would be their response.

The Democrats wrangled over the scope
of the inquiry. Bryan favored wide-ranging hearings under the mantle of Robert L. Henry of Texas, the populist chairman of the House Rules Committee. Conservative Democrats resisted, fearing this would lead to a circus that would taint the party with “Bryanism.” Bryan prevailed—mostly.
The House approved a broad mandate to investigate concentration in banking, backed by subpoena powers to compel testimony. However, the hearings were assigned to the Banking and Currency Committee, whose chairman, Arsène Pujo of Louisiana, was less provocative than Henry. Pujo was president of a small bank and had served under Aldrich on the Monetary Commission. Since Pujo was not very forceful, much would depend on whom he picked as committee counsel.

It is hard to overestimate the fear of bankers at the prospect of being put on the stand. Doubtless, some had secrets to hide. And bankers were not accustomed to being held accountable. In the modern era such hearings have become a familiar ritual; in 1912, however, neither Morgan nor Baker nor Vanderlip had ever had to face the public. J. P. (Jack) Morgan Jr., being groomed as heir to his father’s business, perceptively wrote to Davison, “
The questions will be put
in such a way that no answers that we could make could do us any credit.”

Nevertheless, Vanderlip saw a potential upside. He reckoned that nothing could emerge from the hearings that would be as bad as the “
wild imaginings
that seem to have taken possession of a great many people.” And whatever the committee uncovered, the drama would reignite interest in reform. Indeed, he confidently, if curiously, predicted that the investigation would “plow the ground for the proper consideration of the Aldrich Plan next Fall.”

In March, the Banking Committee
made a decision that did seem to revive the reformers’ chances. While a subcommittee under Pujo’s direction would conduct the Money Trust inquiry, a separate subcommittee would be in charge of drafting remedial legislation. Splitting the committee would hopefully insulate the legislative work from the high political theater of the hearings.

The chair of the legislative panel was Carter Glass, a newcomer to the monetary debates who was suddenly thrust into a leading role. Despite his decade in the House, the fifty-four-year-old Virginian was little known. He was combative and hot-tempered, but a pragmatist underneath. He was partisan but not ideological.

Glass was a Bryan Democrat
and a Jackson Democrat, but he was also a successful newspaper publisher, sensitive to the value of credit. He identified with the small businessmen and farmers in his district (the white ones, at any rate). After his stirring experience at the 1896 Democratic convention, he had entered politics more actively, serving as a delegate to rewrite the Virginia constitution, in 1901–2, for the express purpose of disenfranchising voters of color, whom Glass unashamedly referred to as “
misguided Negroes
.” He was elected to Congress soon after, thanks to the Democrats’ stranglehold on Virginia politics, which was founded on ironclad racial discrimination. For Glass, every political issue was interpreted through the narrow prism of its potential effect on white supremacy. Any position that might drive southern bankers into the arms of the Republicans threatened to uproot the system of racial exclusion—and was to be avoided at all costs.

When Glass went to Washington, D.C., he was assigned to the House Banking Committee—a topic on which he knew nothing.
However, he had no false pride
, and set to educating himself. By the time the Democrats claimed the majority in 1910, Glass had been in the House for eight years. Although he had little to show for it, he had read more than a hundred books on banking and chewed over the system’s defects with countless businessmen and bankers.

Glass’s first move as subcommittee chair was to hire a legislative aide, H. Parker Willis, the banking expert who had studied under Laughlin and who, in turn, had taught economics at Washington and Lee University to Glass’s two sons. Willis’s regular job—writing about banking for the New York–based
Journal of Commerce
—obviously conflicted with his legislative assignment, but neither Glass nor his newspaper cared.

The important point to Glass was that, in the thirty-seven-year-old Willis, he had snared a technician familiar with the salient ideas for reform. Since
Willis was close to Laughlin
, having collaborated with him recently on the handbook for the Citizens’ League, he was
also quite familiar with the Aldrich Plan. Although Willis did not support the plan (in public, at any rate), it is significant that as the Democrats assumed an active role, the person charged with drafting a bill was at least open to the Jekyl Island notion of a central authority. Warburg, who did not put much faith in the Democrats, seized on this connection to
protect his “baby
.” “The Democratic members of the committee,” he fretted to Laughlin, “are absolutely unfit to ever produce anything; they
simply have not got the knowledge
.” The only option, Warburg cynically advised, was for Laughlin to control Willis and Willis to control the subcommittee.

As a southerner, Glass was suspicious
of federal power and predisposed to be hostile to centralization; his instinct was to organize unaffiliated regional banks around the country.
However, with Warburg prodding Laughlin
and Laughlin coaching Willis, the latter took steps to soften the congressman’s resistance. A letter Laughlin wrote to Willis in June suggests that the pair were tacitly conspiring to change Glass’s views: